Taking Cover in Utilities

While the market has seen many components hit pretty hard in the last few sessions, there remains one sector that seems to have been able to weather the storm: Utilities ($XLU). As market participants leave “risk-on” sectors such as Technology ($XLK) and Consumer Discretionary ($XLY), we are seeing a flight to safety towards more defensive areas of the spectrum.

On a day when every other sector was in the red, and some substantially lower, Utilities were able to put in a gain of over 100 basis points:

In fact, a snapshot of today’s “heat map” shows that Utilities were the lone bright spot:

Carter Worth appeared on ‘Fast Money’ this evening to give his thoughts on some potential “hide out” trades. After Utilities peaked last September, and have subsequently rallied with the broad market, he notes that they have yet to roll over, holding their ground at current levels.

Further, the top gainers in the S&P 500 were, for the most part, Utility names:

$SPX Movers: You can guess what type of day it is when the largest % gainers are Utility stocks and a majority of the largest decliners are Semi, Tech and Retail stocks and down 5%+! $XLU$XLK$XRTpic.twitter.com/MB2If08shI

On top of this, if you have been paying attention to the Daily RRG updates, sent out right here on The Chart Report, this rotation in Utilities has been evident for some time now:

US Equity Sector Snapshot (Daily RRG as of 5/10)$XLP up and right in Leading$XLU$XLRE showing similar strength in Improving, close to Leading$XLF now in Weakening, still has highest RS ratio$XLY$XLK headed towards Lagging$XLV momentum strong in Improving$XLI bullish hook pic.twitter.com/DF6pzAWtkn

According to Arthur Hill, a large portion of new highs among S&P 500 components last week came from this sector as well:

Within $SPX, 127 stocks closed higher last week (25.4%). Consumer staples, utility and finance sectors were well represented among the gainers, but just 5 stocks from the tech sector closed higher last week. pic.twitter.com/joQscqToLR

Why might this be the case? As David Larew explains, Utilities are one area of the market that are isolated from any “Trade War” talk:

Tariffs – what is not affected by tariffs?? Utilities – so in spite of retaliation, this is money. Lots of utilities pay big dividends next week, so breakout of the bullish wedge. Defensive, pay high yields and tariff proof. Alright, alright, alright – Growth and income rocks! pic.twitter.com/DedU5wrqNu

Among the individual names, a few that look strong are Southern Co. ($SO), Xcel Energy ($XEL), American Electric Power ($AEP), American Water Works ($AWK), CMS Energy ($CMS), and Entergy ($ETR):

While this sector could eventually succumb to weakness as others have done over the last week, there is clear Relative Strength here for the time being. The signs have been there for some time, and we are now seeing that as Utilities begin to separate themselves from the broad market.